Unemployment. Unemployment—and specifically youth unemployment—remains a persistent problem in much of the European periphery. While the unemployment rate in Germany and Austria was around 4.6 percent and 5.8 percent respectively as of July 2015, Greece and Spain experienced levels of 25 percent and 22 percent respectively. The story for youth, those Europeans aged 15 to 24, has been even direr, with youth unemployment rates in excess of 51 percent in Greece and Spain and at 42 percent in Italy through 2014. These high levels of youth unemployment have persisted for years, leading to concerns about a potential “lost generation” of young Europeans with negative perceptions of the EU as an emblem of austerity and foregone career opportunities.
Political radicalization. The success of anti-EU parties is not just measured at the ballot box. While many of these parties have seen gains in recent elections, they have also succeeded in shaping national debates and influencing narratives on major issues ranging from immigration and cross-border travel to the role of the EU itself. The level of support and attention paid to these parties in the years to come will also serve as a key indicator of the shape of the EU@30.

In addition to these six indicators, there are four policy activities that can be undertaken both in Brussels and by member states that could unlock greater European growth:

1. Service sector productivity. Europe’s service sector is an area of untapped potential for boosting the region’s productivity. Labor and product market regulations, coupled with price regulations in some sectors, have stunted return on investment for many services. Giving the service sector more space for competition and innovation would provide great opportunities for growth. Through the lens of our scenarios, service sector reforms drive GDP growth in our Renaissance scenario, fueled by a new and dedicated immigrant workforce. In contrast, failed implementation of such reforms creates a drag on the economy in Reformation and is indicative of broader challenges in Middle Ages.

2. Labor market reform. Europe has a highly educated young workforce, a factor that is central to competitiveness. However, the region is struggling to harness this advantage as a result of low labor market flexibility. Rigidities, specifically difficulties in firing or furloughing employees or closing plants, mean that rather than laying off the least productive workers, companies are increasingly hiring temporary workers to avoid separation costs. Europe is home to a talented and highly skilled workforce, but failure to reform the labor market could mean a loss in its labor advantage as workers relocate elsewhere. Once again, labor market reforms are addressed in our scenarios. In Renaissance and Enlightenment, these reforms are enacted to boost competitiveness and growth—to an extreme degree in the latter case. Conversely, efforts to enact these reforms are greeted with protest in Reformation and prove fruitless in Middle Ages.

3. Fiscal union. The merits and challenges posed by a fiscal union—and its requisite institutions—remain a subject of intense debate. Nevertheless, as U.S. Treasury Secretary Alexander Hamilton stated in 1790 in the context of creating a U.S. fiscal union, such a move would “contribute in an eminent degree to an orderly, stable, and satisfactory arrangement of the union’s finances.” A fiscal union has great potential upside, moving the EU toward a true political union and giving it the ability to manage the whole of the European economy. Done correctly, it would reassure markets, lure investment, and boost growth. In our EU@30 scenarios, the fiscal union is created with broad popular support in Renaissance, driving high levels of growth. While such a union is also created in our Reformation scenario, the process of implementation proves more challenging and the benefits take many years to materialize. Conversely, in Enlightenment, growth is generated primarily through outside investments without a fiscal union. In Middle Ages, the EU has neither the popular support nor the capacity to create such an enterprise.

4. Digital single market. As discussed above, a digital single market has the potential to create up to €415 billion in additional growth, hundreds of thousands of new jobs, and a vibrant knowledge-based society for Europe. It would boost access for consumers and businesses to digital goods and services across Europe and strengthen the environment for digital networks and services to grow rapidly. While many challenges remain, including the inequality of technology infrastructure across the EU, the potential benefits make the effort to overcome these obstacles worthwhile. A digital single market is created in our Renaissance and Reformation scenarios and provides a boost to economic growth in both scenarios. The Enlightenment scenario is one where, particularly given the emphasis on the technology sector, the creation of a digital single market could likely have yielded additional growth, but a lack of cross-border collaboration prevents it from taking hold. As is the case with the other growth opportunities, the digital single market is unattainable in the Middle Ages scenario as countries increasingly turn inward.

Regardless of the shape of the EU@30, Europe will remain a critical region for the world—economically, socially, and politically. Over the next eight years and beyond, the region will be shaped not just by the challenges it confronts, but also by the way in which it addresses each of these challenges. Striking the proper balance between core principles and contending with economic and political realities will remain central to the ongoing story of the European project. The one certainty is that change will come to Europe. It is incumbent on business leaders and decision makers to provide leadership and collaborate, when possible, to make the EU@30 as dynamic and strong as it can be.

The authors would like to thank Terence Toland, Samuel Brannen, Courtney Rickert McCaffrey, and Xinrui Zeng for their important contributions to this report.